Progressive May Cut Rates As Profits Soar

NU Online News Service, Jan. 22, 4:14 p.m.EST?

The company said net income for the period came in at $357.8million, a gain of $205.6 million over the $152.2 million in netprofit reported for the period in 2002, as net premiums writtenrose and net realized losses on securities fell sharply.

Progressive Chief Executive Glenn Renwick, in a conference callwith analysts today, said 2004 will be "a somewhat softer market"and that Progressive may take "selective rate adjustments downward"to preserve its market share.

For the quarter, overall revenue went up 24 percent to $3.17billion, compared to $2.55 billion reported one year earlier, whilenet premiums written was up 21 percent to $2.91 billion and netpremiums earned rose 23 percent to $3.04 billion.

The company also reported that its net realized losses onsecurities dropped for the quarter, to $3 million from $37.1million posted during the corresponding period in 2002.

Progressive said recurring investment income also improvedduring the quarter, reaching $90.5 million after taxes, compared to$82.0 million after taxes for the fourth quarter of 2002. Duringfourth-quarter 2003, Progressive produced a combined ratio of 85.9percent, compared to 93.3 during the corresponding quarter for2002.

For 2003 overall, Progressive, based in Mayfield Village, Ohio,said its net income went up 88 percent to $1.26 billion, comparedto $667.3 million reported in 2002. Annual revenues also rose toreach $11.89 billion, a 28 percent improvement over $9.29 billionrecorded for 2002.

Results for the year also included a 26 percent year-over-yearimprovement in net premiums written, which reached $11.9 billion in2003; a combined ratio of 87.3 percent, down from 92.4 in 2002; anda return on average shareholder's equity of 29.1 percent.

Mr. Renwick told analysts 2003 was a good year and he is"pleased with the results for both the quarter and the year."

"There is not much we would change about the year," Mr. Renwicksaid. "We met our financial goals of getting at least a four-pointunderwriting profit and then maximizing growth."

Progressive also reported positive developments for its lossreserves. During the year, the company experienced a favorableprior-year development of $56.1 million. During the fourth quarter,the insurer's actuarial group reduced reserves by $4.1 million andthe company experienced $40.9 million of favorable development,reducing the quarterly combined ratio by 1.3 points.

The favorable reserve development, Progressive said, came evenlyfrom private passenger auto, commercial auto and assigned riskreserves. "In short, reserving has been right on the money," Mr.Renwick said.

In his outlook for 2004, Mr. Renwick told analysts that he sees"a somewhat softer market" and that Progressive may implement ratecuts to stay competitive.

"As you all know, the terms soft and hard are used pretty widelyin the industry, but no one has quite the right definition todescribe what I see as somewhat softer market conditions," hesaid.

Mr. Renwick observed that many of his competitors have gottenrate adequacies during 2003 and that he is seeing some ratereductions happening. One notable development is the Bloomington,Ill.-based State Farm Insurance Companies' announcement of lowerrates in Arizona, he said.

Going forward, Progressive may lower rates selectively. Mr.Renwick explained that there are markets where his company hasoutperformed its own expectations and that in such areas, "it mightbe prudent to take a rate change to stay very competitive."

"We certainly don't want to see any situation where we couldperhaps fall back. So anything that would preserve our market sharewithin reason is something we would consider," he said. But Mr.Renwick stressed that his primary strategy will not be reducingrates. "The key message is that it is not a whole-sale ratereduction," he said.

The Progressive group of insurance companies ranks third in thecountry for auto insurance based on premiums written. The insureroffers its products by a toll-free phone number and online atprogressive.com, as well as through more than 30,000 independentinsurance agencies and brokers.